Bloomberg Businessweek’s January 17th article entitled “Wanted:  Obamacare Death Panelists”corrects misperceptions of the law, but also highlights serious challenges in fighting fraud and rising health care costs.  The controversy started when Sarah Palin made erroneous claims that bureaucrats could cut costs by denying expensive medical treatment to seniors.  Specifically, she was referring to the Independent Payment Advisory Board (IPAB), which was created to slow the growth in Medicare spending when President Obama signed the Patient Protection and Affordable Care Act, also known as Obamacare.  The board will consist of 15 members, who have expertise in health care, economics, experience with employers and third party payers, and working with consumer groups.

While it is true that IPAB will be bureaucrats appointed by President Obama and confirmed by the Senate, their powers in controlling health care costs are limited.  In fact, they can only act when actual Medicare expenditures exceed specified targets.  They are also prohibited from doing the following three actions:

• ration health care;
• raise revenues or increase Medicare premiums;
• restrict benefits or change eligibility criteria.

It just so happens that those three methods would be the easiest ways to control rising costs.

Therefore, their main function is to find ways to streamline the delivery of health care by identifying instances of fraud or limiting payments to private insurance companies.  In 2020, their powers will be extended to limiting payments to hospitals.  They would do this by drafting recommendations that must be considered by Congress.   While Congress could amend or repeal any of the recommendations by gaining a three-fifths majority vote in the Senate, they must come up with an alternative set of recommendations that would yield the same amount of savings.  If they do not meet those guidelines, then Kathleen Sebelius, who heads the U.S. Department of Health and Human Services would be required to implement the IPAB recommendations by default.

The main problem with the IPAB will be finding quality candidates to serve on the board.  Even though it pays a generous salary of $165,300, that compensation is far below the market value of many health care experts and doctors.  It also requires a full-time commitment of six years, so they would have to leave their profession.  In addition to their limited powers, they would be subjected to contentious Senate hearings that have the potential to malign their reputations.  Some have suggested that board membership should be part-time, so that they can continue with their day-to-day jobs, but that would cause potential conflicts of interest.

While critics balk at having unelected bureaucrats making decisions on health care spending, our current Congress is incapable of seriously addressing the issue.  The political costs of dealing with health care in a reasonable way are twofold.  First, seniors are a significant voting bloc, so it will be difficult to justify significant cuts in benefits.  Second, the various special interest lobbyists representing doctors, hospital administrators, and medical device suppliers are extremely powerful.  Both groups have the funding and influence to organize opposition to take out incumbents that go against their wishes.

Ideally, we would have our elected officials make the tough decisions, rather than deferring them to a group of bureaucrats.  The problem is that it is in a Congressman’s best interest to not compromise in order to enhance their re-election prospects.  Given the demographics and projected explosive growth of Medicare though, there will not be enough savings gained from fraud and inefficiencies from health care delivery systems to close the future funding gap.  Despite the inherent risks of compromising and finding common ground, the status quo and simply deferring the problem into the future will only make the problem more unmanageable over time.

In order to come up with an ideal solution to Medicare, we first need to outline priorities.  Is the goal to protect vulnerable seniors?  Then we need to restrict eligibility through greater means testing.  That means higher incomes would pay more premiums and receive less coverage, while lower incomes would maintain the same level of coverage.  If the goal is to maintain the same level of benefits for the poor, middle class, and affluent, then we must risk taking on substantially higher deficits and hope global investors will look the other way.  It will not be practical to raise enough tax revenue or gut other federal spending in order to meet future Medicare needs, which is projected to be insolvent by 2024.

Given the political difficulties, the IPAB appears to be the best option in controlling Medicare spending despite its flaws.  Due to the problem of scarcity, any recommendations implemented from the IPAB will undoubtedly negatively affect the delivery of health care because there is not enough fraud to offset increased health care spending as Baby Boomers retire.  However, the positive would be that Congress might be forced to find common ground that will involve some combination of tax increases and reductions in benefits in order to minimize the impact on quality and access to health care.

In fact, common ground would probably entail some sort of means testing, which would appear to hold appeal to Democrats because it involves redistribution from the rich to the poor.  The only problem is that Republicans surprisingly came up with the idea, so naturally Democrats rejected it.  Doesn’t that make you shake your head…

About Aaron Johnson